Recently, RMB exchange rate depreciated rapidly. On the morning of September 26, the onshore RMB fell below the 7.15 mark against the US dollar, setting a new low in more than two years. Since then, the National Foreign Exchange Market Self-Discipline Mechanism Video Conference was held on the 27th. The meeting emphasized that the foreign exchange market is of great importance and maintaining stability is the first priority. The RMB exchange rate remains basically stable and has a solid foundation.
In this survey, the chief economists analyzed the reasons for the sharp depreciation of the RMB against the US dollar in this round, discussed what impacts the RMB will have on my country's macroeconomic , how my country should deal with these impacts, and made predictions on the future trend of the RMB exchange rate.
In the figure above, we are , chief economist of China Merchants Bank , , Ding Anhua (top left first), Zheng Houcheng, director of Yingda Securities Research Institute (top left second second), , chief macro analyst of China Merchants Securities , Xie Yaxuan (middle left first), , chief economist of ICBC International , , chief economist of , Cheng Shi (middle Second from left), Kang Yong, chief economist of KPMG China (third from the middle left), Li Wenlong, chief economist of Huanya Digital Economy Research Institute (first from the middle right), Xu Sitao, chief economist of Deloitte China (first from the left), Wang Han, chief economist of , Ruisui Securities, Zhou Xue, Asian economist of Ricesui Securities, and chief economist of National Information Center, Zhu Baoliang, (first from the right).
Main views :
US dollar index strengthening and the differentiation of China-US monetary policy are the main reasons for the sharp depreciation of the RMB against the US dollar in this round. In the short term, the sharp depreciation of the RMB will lead to some capital outflows, putting pressure on my country's capital market; but in the long term, the impact on my country's macroeconomic is relatively limited.
1. What is the reason for this round of sharp depreciation of the RMB against the US dollar?
The strengthening of the US dollar index and the differentiation of China-US monetary policies are the main reasons for the sharp depreciation of the RMB against the US dollar in this round.
Li Wenlong: One is The fast Fed 's interest rate hike and the expectation of further hike has attracted a large amount of non-US funds to flow into the US dollar market. Second, China's monetary policy is in the stage of interest rate cuts, which is in contrast to Fed rate hikes . In addition, China's economy is downward, further promoting the depreciation of the RMB.
Zhou Xue: The main reason for this round of RMB depreciation is the strong US dollar and the pressure from institutional investors to short the RMB.
Xie Yaxuan: The reason for the rapid depreciation of the RMB against the US dollar since August 15: first, the US dollar strengthened. The Federal Reserve raised interest rates sharply, and the 10-year US bond yield rebounded; at the same time, the market was worried that the energy crisis in Europe would break out in winter, causing the US dollar index to rebound. second, MLF interest rate was lowered on August 15. Third, the domestic epidemic is spreading more and the real estate problem has not been resolved.
Ding Anhua: In terms of external factors, the Fed's tightening attitude exceeded expectations and the US dollar index strengthened, and once stood at a high of 110 , and the inverted spread of interest rates between China and the United States deepened. The recent economic performance of the United States has also contributed to the market's expectations of the Federal Reserve's interest rate hike. The Federal Reserve still has a long way to go to achieve its inflation control target.
Internal factors, China's domestic and foreign demand data performed weakly, and the central bank's interest rate cut beyond expectations has intensified the differentiation of monetary policies between China and the United States. In terms of domestic demand in , macro and financial data in the past two months are still weak. Although the economic data in August has improved marginally, the arrival of the economic turning point cannot be confirmed. The central bank lowered the MLF and OMO interest rates in the third quarter to guide the LPR interest rates to decline, guided the financing costs of the real economy to decline, and the differentiation of monetary policies between China and the United States intensified. In terms of foreign demand, under the influence of last year's high base and the impact of overseas interest rate hikes suppressing total demand, export growth rate fell to 7.1%, and the surplus dropped from US$101.26 billion to US$79.39 billion. With the gradual advancement of interest rate hikes by overseas central banks, foreign demand will face pressure to continue to decline.
Wang Han: RMB depreciates against the US dollar, and the main reason for is the sharp strengthening of the US dollar index.The strengthening of the dollar index is due to the continued sharp interest rate hikes in the Federal Reserve and the obvious risk of recession in Europe under energy restrictions, which led to a significant depreciation of the euro exchange rate against the US dollar, while the euro weighs 57.6% in the US dollar index, which has led to a significant strengthening of the US dollar index.
Xu Sitao: RMB depreciates sharply against the US dollar mainly because of the overwhelming strength of the US dollar. The strength of the US dollar is mainly due to interest rate spreads (the Federal Reserve's attitude towards inflation is getting tougher) and the increasing geopolitical risks, as well as the US dollar is regarded as a safe-haven asset when most assets (stocks, bonds, and bitcoin, etc.) are sold. Meanwhile, against the backdrop of rising global interest rates, central banks in Japan and China have adopted a loose monetary stance for domestic reasons, which in turn strengthens the strength of the dollar. But objectively speaking, the RMB only depreciates against the US dollar, and is still in a state of appreciation against the pound, euro and yen.
2. What impact will the sharp depreciation of the RMB have on my country's macroeconomic? How should our country deal with these impacts?
In the short term, the sharp depreciation of the RMB will lead to some capital outflows, putting pressure on my country's capital market, but in the long run, the impact on my country's macroeconomics is relatively limited.
Zhu Baoliang: will lead to partial capital outflow in the short term, and the capital market will be turbulent; the pressure of imported inflation is increasing; but the RMB is basically stable against a package of currencies, and the depreciation of the RMB against the US dollar has limited impact on my country's monetary policy, import and export, and economic growth.
In terms of response, we must increase the flexibility of the RMB exchange rate and give full play to the role of the economic stabilizer of exchange rate , and there is no need to interfere with the exchange rate.
Zhou Xue: The sharp depreciation of the RMB will bring inflation pressure into , which will increase the pressure on capital outflow, which is not conducive to the long-term goal of RMB internationalization .
Ding Anhua: RMB breaking 7 emotionally has a negative impact on both stocks and bonds assets, but this impact is usually short-term and may end soon. There are many reasons why affects asset prices and is difficult to attribute to a single exchange rate factor. However, from a medium-term perspective, bond interest rate fluctuations are therefore not the result of exchange rate fluctuations. If the interest rate gap between China and the United States can stabilize and narrow, it will be conducive to the stabilization and rebound of the RMB exchange rate. A shares have a strong positive correlation with the exchange rate in the past few years, and the two often fall simultaneously. Therefore, if the RMB will fall rapidly to 7.2 in the future, you need to be wary of the risk of further decline in A-shares.
Wang Han: The main reason for the recent depreciation of the RMB is the strengthening of the US dollar index, which has no obvious direct relationship with China's fundamentals. Regarding the depreciation of the RMB, the market may be concerned about: 1) The impact on imports and exports. It is beneficial to China's exports, and at the same time, the rise in import prices may bring about imported inflation pressure. However, considering that other currencies also depreciate against the US dollar, it mainly affects imports and exports settled in US dollars. 2) Pressure on capital outflow. If there is continued expectations of RMB depreciation, there may be pressure for capital outflows.
should respond to the depreciation of the RMB, and should reasonably guide market expectations to avoid unnecessary panic. The central bank has guided market expectations through foreign exchange risk reserves, foreign exchange market self-discipline mechanisms and other measures.
Xu Sitao: The depreciation of RMB actually has a relatively positive effect on China's reinflation, and objectively helps to enhance export competitiveness (although this is not intentional). But some industries, such as airlines or energy importers, will be adversely affected by the depreciation of the yuan, but the government can respond to these challenges through subsidies.
3. How to view the trend of the RMB exchange rate in the next year?
In this survey, economists expect the RMB exchange rate against the US dollar to depreciate in the next month. At the same time, their expectations for the RMB exchange rate against the US dollar at the end of the year were lowered to 7.11 from 6.84 at the end of last month.
Zheng Houcheng: is expected to have a complete reversal around March 2023 or in the spring of 2023.The basis for to make this judgment is as follows: First, from the perspective of macroeconomic fundamentals, industrial enterprises are currently in the stage of active inventory destocking, roughly entering the stage of passive inventory destocking around March 2023, that is, the stage of recovery of the macroeconomic. In contrast, with the continued advancement of the Fed's interest rate hike, the US ISM manufacturing PMI and Markit manufacturing PMI are likely to continue to decline in the boom and bust line in the first quarter of 2023. In summary, my country's macroeconomics may be stronger than the United States from March 2023. Second, from the perspective of monetary policy, the time when the Federal Reserve cut interest rates is likely to fall in the second half of 2023, among which the probability of the third quarter is greater than that of the fourth quarter. In contrast, my country's monetary policy, when my country's macroeconomic enters the passive inventory replenishment stage in March 2023, coupled with the Federal Reserve's interest rate cut, it is expected that the necessity of my country's central bank's interest rate cut will decrease by then. In other words, there have been fundamental changes that are beneficial to our country at the monetary policy level, which are beneficial to the RMB exchange rate. Third, from the perspective of the US dollar index, there are two main clues. First of all, with the advancement of interest rate hikes in major economies around the world, the total demand for global macroeconomics is under pressure, which has a negative impact on international oil prices and a marginal negative impact on the United States, as a crude oil exporter. Secondly, the "Russia-Ukraine conflict" has shown signs of favorability to Ukraine, the macro environment of the euro zone is expected to be marginalized, and the macro economy of the euro zone may be marginalized. It is worth pointing out that while the Federal Reserve raises interest rates, it also creates negative news for international oil prices. This means that Russia, which has previously benefited from high oil prices, may face a downward trend in fiscal revenue growth. This situation also prompted Russia to seek to end the Russian-Ukrainian conflict as soon as possible, thereby creating marginal benefits for the euro zone.
Li Wenlong: The trend of the RMB exchange rate in the next year mainly depends on the following factors: First, the difference in economic growth rates between China and the United States. If China's economy stabilizes and rebounds in 2023, the RMB value will receive further support. The second is the interest rate level of China-US . It is expected that China-US interest rates will still be in a "medium-low-high-US" situation in 2023, but expectation of further interest rate hikes in the United States will disappear, and the US dollar index will be in high momentum. The third is the geopolitical situation. If the conflict between Russia and Ukraine escalates, global safe-haven assets may increase investment in China. Fourth, the policy does not support the continued unilateral and significant depreciation of the RMB. Overall, the RMB is currently at a temporary low, and it is expected that the RMB will slowly appreciate to around 6.8 in 2023.
Kang Yong: China and the United States are in different stages of economic cycle . Factors such as epidemic trend, inflation growth rate, monetary policy, etc. will also increase exchange rate fluctuations in the short term. However, although the short-term exchange rate is difficult to predict, the medium- and long-term trend of is determined by fundamentals such as national economic development, price changes, and capital account management methods. The central bank has taken measures to stabilize the exchange rate trend recently. As China's economy gradually recovers, the RMB is expected to stabilize and rebound at the current level in the next year.
Chengshi: exchange rate is a relative concept. Although the RMB is depreciating against the US dollar, the RMB is still relatively stable against a basket of currencies, and the latter is more positive for the development of international trade . With the multiple blessings of rebounding economic growth, controllable inflation and sufficient policy space, the RMB exchange rate is stable and still has a strong material basis. Considering that the global economic environment is becoming increasingly complex and changeable, market entities and policy authorities need to be wary of the possibility of "depreciation of the inner demon" of the RMB against the US dollar. Looking ahead, in the short term, policy efforts will help China's economic fundamentals gradually improve, and are expected to create conditions for market expectations to stabilize; in the medium term, China's manufacturing and industrial chain are still resilient, and are expected to provide support for the stability of the RMB exchange rate; in the long term, the high-quality development of and high-level opening up are steadily advancing, which is expected to lay a solid foundation for the internationalization of the RMB.
Xie Yaxuan: The central bank has lowered the reserve ratio of foreign exchange deposits and may have activated the countercyclical adjustment factor of the RMB exchange rate. But in the future, two changes will be needed to reverse the trend: one is that the domestic economy has improved significantly; the other is that the US dollar index has fallen, which requires the slowdown in the Fed's interest rate hike process and the lifting of European energy risks.
Wang Han: The RMB may appreciate against the US dollar in the future. First, after the United States controls inflation, the pace of monetary policy tightening may slow down significantly, and the US dollar index may fall back; secondly, China's economy is gradually recovering, and in the context of the risk of recession between the United States and Europe, it basically forms support for the RMB exchange rate.
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text | He Xiao Researcher at the First Financial Research Institute
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